Question

Mortgage Analysis

You are planning to purchase a house that costs $480,000.  You plan to put 20% down and borrow the remainder. Based on your credit score, you believe that you will pay 3.99% on a 30-year mortgage.

1. Use function “PMT” to calculate your mortgage payment.
2. Use function “PV” to calculate the loan amount given a payment of $1700 per month. What is the most that you can borrow?
3. Use function “RATE” to calculate the interest rate given a payment of $1700 and a loan amount of $384,000.
4. For each scenario, calculate the total interest that you will have paid once the mortgage is paid off.  (There is not a function for this, enter the formula into the cell.)
5. For each scenario, calculate the total cost of the home purchase.  (Down payment plus principle (loan amount) plus interest.)
6. Assume that you plan to pay an extra $300 per month on top of your mortgage payment, calculate how long it will take you to pay off the loan given the higher payment. (Use the data from #1). Calculate how much interest you will pay in total? Compare this to the value that you calculated for #1.

You want to determine whether or not you should save some of your money and put only 10% down on your house. Because you are only putting 10% down, lenders require that you purchase private mortgage insurance (PMI).  Assume that PMI is 1% of the mortgage amount.  Assume that you will pay PMI for 8 years in total (the assumption is that you will have 20% equity at that time so PMI will no longer be needed).

7. Calculate your total monthly payment (mortgage payment plus PMI).  
8. Calculate the total cost of financingyour home purchase (interest plus PMI).
9. Calculate the total cost of the home purchase. (Down payment plus principle (loan amount) plus interest plus PMI.)
10. Compare this to the costs associated with a 20% down payment (use data from #1).

Memo

1. Summarize the results of each of your calculations.
2. Discuss the interest savings associated with an extra payment of $300 per month.
3. Discuss Private Mortgage Insurance.  What is it? Why do lenders require it?  What is the benefit to the borrower?
4. Compare the costs and benefits of a 10% down payment versus a 20% down payment.

Simply answer the 10 questions and focus on the MEMO questions. If you can please use excel vision to answer my questions.Thank so much

Answer 1

Home Price = $ 480000, Mortgage Downpayment = 20 % = 0.2 x 480000 = $ 96000, Interest Rate = 3.99 % and Tenure = 30 years or (30 x 12) = 360 months, Mortgage = 480000-96000 = $ 384000

(a) Using PMT Function, the monthly payment will be calculated as:

-Input PMT(rate,nper,pv,fv,type) where rate = (3.99/12) x (1/100) = 0.003325, nper = 360 months, pv = 384000, fv = 0, type = 0 (end of period payments)

- PMT = $ 1831.06

(b) Using PV Function, the monthly payment will be calculated as:

- Input PV(rate,nper,pmt,fv,type) where rate = 0.003325, nper = 360, pmt = $ 1700, fv = 0 and type = 0

- PV = $ 356514.49

(c) Using Rate Function, the monthly payment will be calculated as:

- Input Rate (nper,pmt,pv,fv,type,guess) where nper = 360, pmt = 1700, pv = 384000, fv = 0 and type = 0. Guess can be any random integer

- Rate = 0.0028217 or 0.28217 % ~ 0.2822 % per month

- Annual Rate = 0.2822 x 12 = 3.3864 %

(d) Interest paid in case (a) = PMT x 360 - Mortgage = 360 x 1831.06 - 384000 = $ 275181.6

Interest paid in case (b) = PMT x 360 - PV= 1700 x 360 - 356514.9 = $ 255485.1

Interest Paind in case (c) = PMT x 360 - Mortgage = 360 x 1700 - 384000 = $ 228000

NOTE: Please raise separate queries for solutions to the remaining unrelated questions and sub-parts, as one query is restricted to the solution of only one complete question with upto four sub-parts.